SSH Holdings Inc. d/b/a Spencer Spirit Downgraded To #CCC+# On Expected Weak P Outlook Negative

Stocks and Financial Services Press Releases Thursday August 3, 2017 09:33
NEW YORK--3 Aug--S&P Global Ratings

NEW YORK (S&P Global Ratings) Aug. 2, 2017-- S&P Global Ratings today lowered its corporate credit rating on Egg Harbor Township, N.J.-based retailer SSH Holdings Inc. d/b/a Spencer Spirit to 'CCC+' from 'B-'. The outlook is negative.

At the same time, we lowered the issue-level rating on the company's first-lien term loan facility to 'CCC+' from 'B-'. Our '3' recovery rating on the term loan facility is unchanged and reflects our expectation for moderate (50%-70%; rounded estimate: 50%) recovery in the event of a payment default.

The downgrade reflects the company's recent weak operating performance, combined with our view that an increasingly challenged retail environment will continue to pressure profitability and cash flow.

The negative outlook reflects our expectation that operating performance will continue to be soft over the next 12 months given the increasingly challenging retail environment that will result in continued declines in mall traffic, and mounting competitive pressures weighing on profitability over that time   period.

We could lower the ratings if we envision a specific default scenario, including a repayment of debt below par, occurring over the next 12 months. We could also lower the rating if operating performance under performs our expectations, resulting in meaningfully negative free operating cash flow and reliance on the revolving credit facility to fund business operations. Under this scenario, revenue would be flat (compared with our base-case expectation of low-single-digit revenue growth) and gross margin would fall an additional 200 bps below our forecast.

Although unlikely in the next 12 months, we could revise the outlook to stable or raise the rating if the company can restore consistent revenue and profit growth and generate positive free operating cash flow, while stabilizing performance at the Spencer's brand. This could result from solid merchandise management at Spencer's, improved omni-channel functionality, and increased consumer spending on small-ticket discretionary items. At that time, fixed-charge coverage would be in the mid- to high-1.0x area, and we would also believe that the possibility of a financial restructuring is low due to a meaningfully improved operating outlook for the company.


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